As I prepare to hand over leadership to Alison, I wanted to take this opportunity to write to you directly about Djerriwarrh and to share why I believe the company is well positioned as I move into the next phase of my life.
Looking at where things stand within the broader market cycle, Djerriwarrh appears modestly undervalued at present, with an attractive dividend yield. That combination is a good thing for a company whose role, in many investors' portfolios, has been to provide a steady, consistent investment alternative.
The two tests that matter most
Whenever I assess where a company like Djerriwarrh sits, I come back to two simple but important questions.
The first is the most fundamental: are these good companies? It's one thing to trade at a discount to fair value, but that only matters if the underlying portfolio is genuinely high quality. Looking through our holdings today, I'm confident the answer is yes - Djerriwarrh holds businesses that meet our criteria for quality: unique assets, earnings sustainability, balance sheet strength and strength of management, which gives me real comfort as I hand over the reins.
The second test relates to cost. Because of how our group is structured, we are employees of the company. There is no separate external fund manager sitting alongside us taking fees. That means there's no fee leakage between investors and the underlying portfolio; what you see is effectively cost recovery, not a profit margin sitting on top.
What that means in practice
To put a number on it: our cost structure across the group reflects the relative size of each fund. Because AFIC is ~$10 billion in size, its costs work out to around 0.14% with no performance fees. Djerriwarrh, being a smaller fund, sits at around 0.4%, and Mirrabooka and AMCIL are around 0.5%. In every case, there are no performance fees.
That's a structural advantage worth reminding investors of. When you combine a genuinely low-cost, no-performance-fee structure with a portfolio trading below fair value and an attractive, fully franked dividend yield, you have an investment vehicle that is doing a lot of the heavy lifting on your behalf, quietly and efficiently, year after year.
Patience, and a belief in value
One of the lessons I was taught early in my career has stayed with me throughout: eventually, value will be recognised. It can take time — sometimes longer than anyone would like — but eventually the market finds its way to where the value sits.
I've seen that play out across multiple cycles during my career at AFIC, and I see no reason that principle won't continue to hold true for Djerriwarrh.
A confident handover
As I step back and pass the leadership to Alison Gibson and the investment team, I do so with genuine confidence. The fundamentals are sound: a portfolio of quality companies, a valuation that looks attractive relative to history, a strong and fully franked dividend yield, and a cost structure that keeps almost all of the value generated flowing through to you, the investor.
These aren't flashy attributes, but they are the ones that matter most over the long run. They reflect a simple philosophy that has guided this fund for years — and one I'm confident Allison will continue to apply with the same discipline and care.
Thank you for your trust and support throughout my time being a part of the management of the Djerriwarrh fund as part of AFIC’s portfolio. It has been an honour to manage this fund on your behalf, and I leave it in very good hands.